Last Thursday Chancellor Rachel Reeves delivered her first Mansion House speech. In it, she emphasised the government’s ‘national mission’ of economic growth, highlighting areas which the government aims to prioritise – including FinTech and sustainable finance. She introduced the National Payments Vision, which sets out the government’s ambitions for the sector. The National Payments Vision addresses findings from the 2023 Future of Payments Review, led by Joe Garner, and outlines the government’s ambitions for bolstering the UK’s payments sector to deliver economic growth.
In ten key points, the National Payments Vision (NPV) seeks to address the following aims.
1. Foster innovation
Prioritise innovation to enhance consumer experience and economic growth, leveraging advancements in AI and next-generation technologies. The word “innovation” features a full 64 times in the document and is the first of the three key pillars of the NPV. It is a theme that rightly runs throughout the document, touching issues such as regulatory congestion, renewed infrastructure, account-to-account payments and data-sharing (see Open Banking below), Open Finance and Central Bank Digital Currencies.
2. Encourage competition
Facilitate competition to ensure a variety of payment options, including cash, while developing a strategic direction to avoid falling behind international peers. This is the second of the three key pillars and is seen as key to ensuring not just that the UK remains as a world-leading venue for payments, but also that the stage is set for economic growth through innovation and through consumers and businesses benefiting from better and cheaper ways to pay. It is encouraging to see that in a number of places there is specific mention of the effect of proposed measures on smaller firms that are in many cases the source of the innovations that spur on competition.
3. Ensure security
Maintain high standards for payment security and consumer protection, with a strong focus on reducing payments fraud, while increasing cross-border activity and international interoperability. The rules around APP fraud are a particular focus, with passages around the involvement of the tech sector in preventing fraud, the additional burden on payments firms and the proposal to review the rules in 12 months. More generally, the NPV points to the implementation of robust measures to prevent payments fraud, including a cross-sectoral approach involving not just financial regulators but also the technology and telecommunication sectors.
4. Streamline the regulatory framework
Ensure that the UK has a clear, predictable, and proportionate regulatory framework with better coordination between the industry’s various regulators. The NPV recognised the “regulatory congestion” identified in the Garner review, namely that the raft of initiatives and rule sets being introduced by three different regulators (FCA, BoE and PSR) as well as from industry and government, has often led to overlapping requirements and a significant compliance burden on the sector, that was in turn hampering growth. The government now seeks to solve this issue through a number of related measures:
- by recommending a strengthening of the mechanisms to support coordination between regulators through a revised version of the cooperation Memorandum of Understanding between the BoE, PRA, FCA and PSR, considering in particular how their collective impact on regulated firms might be reduced (including in relation to information requests);
- by issuing fresh remit letters to the FCA and BoE and a new joint remit letter to the FCA and PSR, recommending priorities for the payments sector in line with the NPV, and welcoming the FCA’s commitment to manage “overlaps between the FCA and PSR’s exercise of their functions, particularly in relation to fraud policy”;
- by establishing the “Payments Vision Delivery Committee” to ensure coordination between regulators and prioritisation decisions on initiatives. The Committee will consist of the regulators themselves (BoE, FCA, PSR), be chaired by HM Treasury, and will be supported by the “Vision Engagement Group”;
- by establishing the Vision Engagement Group to facilitate enhanced collaboration between government, regulators and industry (as recommended in the Garner Review). This will be a public-private group with representatives from government and the regulators, as well as “representatives across the sector” who will be admitted to the group on an open application basis.
5. Secure a resilient payments infrastructure
Upgrade the retail payments infrastructure for enhanced resilience, while supporting innovative technologies. The New Payments Architecture project has been slow in its delivery, and other issues around the future of the UK’s infrastructure and needs have also been identified. The government agrees with the Garner Review’s assessment that “a world leading payments environment is vital for a world leading economy and a healthy society” and considers that it needs to take a greater role in strategic decisions around payments infrastructure in the short to medium term. For now, they are recommending a more agile and flexible approach to delivering the UK’s infrastructure needs, and have asked the BoE and the PSR, via the Payments Vision Delivery Committee, to examine and refresh the requirements for the UK’s retail infrastructure. This will include proposals to reform Pay.UK, acknowledging the frustration the industry has experienced with Pay.UK as a payment systems operator, and a review of regulatory congestion around investment into competing infrastructure initiatives.
6. Develop Open Banking payments
Call on the FCA and PSR to consider their commitment to developing Open Banking to drive delivery of seamless and ubiquitous account-to-account payments. This was a big topic in the Garner Review, with the UK being far behind other countries in its development and use of account-to-account payments as opposed to cards. The government has asked that FCA to be the UK’s regulator for Open Banking, and wishes in time to create a new central body that will take on and expand the role of Open Banking Limited. There are also passages specifically around:
- the need to unlock variable recurring payments for e-commerce in the short term;
- the creation of a sustainable commercial model to facilitate innovation and investment;
- consumer protections, especially in the form of a dispute resolution process.
7. Data sharing and Open Finance
The National Payments Vision rightly praises the success of the data sharing aspects of Open Banking to date, but points to the potential for it to expand well beyond the scope of the CMA Order that kickstarted its development back in 2017. It points to the need to move to a long-term regulatory framework, the opportunities to customers and businesses to leverage their data to access personalised services and finance, and the government’s ambition to be a world leader in Open Finance.
8. Explore digital currency
Continue the exploration of a Central Bank Digital Currency (like the digital pound) to complement cash and foster technological innovation. No decision has been taken on whether or not to launch a digital pound, but there is a commitment to explore its use cases, and not to introduce a digital pound without primary legislation following further public consultation. That legislation would, importantly, guarantee users’ privacy and control of their money.
9. Digital identity
Enabling the use of trustworthy digital identity products through an accreditation scheme introduced by the Data (Use and Access) Bill. Crucially, this is not a mandatory digital ID system, but instead consists of a framework of standards and governance against which digital verification service providers can be assessed, such that they are then certified to offer their services to those who want to use them. The NPV looks in particular to use cases that facilitate easier payment (without having to use account numbers and sort codes), and also to the potential for such services to be used in the fight against economic crime.
10. Strong customer authentication
Allowing the regulators and industry to move away from the prescriptive existing rules on strong customer authentication standards that emanate from PSD2, by moving towards the FSMA-model of regulation heralded by the Edinburgh reforms. As a result, authentication requirements will be incorporated in the FCA’s rules, which will in turn allow for more agile and outcomes-based rule making that enables industry to be more flexible in how it prevents fraud whilst improving customer experience.
In summary the National Payments Vision aims to strengthen the foundations of the payments system, while focusing on innovation, competition and security to guide future actions. It is a solid follow-up to the Garner review, and something that many in the payments industry will welcome, particularly in its focus on innovation, competition and the balance to be struck between security and compliance on the one hand, and regulatory overload on the other. Of course, much of the devil will be in the detail of the full proposals on the various topics as they emerge, but this is a very encouraging set of directions for the proposals to follow.
Authors
Chris Hill
Partner
Omar Salem
Partner
Peter Finch
Partner
Mardi MacGregor
Partner
Dominique Logan
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